Philippine Peso Has Best Week in Three Months on QE3 Optimism

Sept. 7 (Bloomberg) -- The Philippine peso completed its
biggest weekly gain in almost three months and government bonds
rose as speculation the U.S. plans a third round of quantitative
easing bolstered demand for higher-yielding assets.

The peso rose 1 percent this week to 41.67 per dollar in
Manila and advanced 0.5 percent today, according to Tullett
Prebon Plc. It has appreciated 5.2 percent this year, the best
performance among Asia’s 11 most-active currencies, data
compiled by Bloomberg show. One-month implied volatility, a
measure of exchange-rate swings used to price options, dropped
40 basis points to 5.7 percent this week and was unchanged today.

“QE3 definitely propped up Asian currencies,” said Enrico
Tanuwidjaja, a regional economist at Royal Bank of Scotland
Group Plc in Singapore. “The market expectation that the policy
rate will be kept unchanged because of strong growth and
inflation picking up supports the peso.”

Consumer-price gains accelerated to 3.8 percent in August,
the fastest pace since January, the government reported on Sept.
5. The Philippine economy expanded 5.9 percent in the three
months through June from a year earlier, compared with a 5.5
percent gain predicted by analysts in a Bloomberg survey,
according to official figures released Aug. 30.

Best Performer

Central bank Deputy Governor Diwa Guinigundo said today
policy makers will probably raise inflation forecasts for 2012
and 2013, signaling the bank may pause after three interest-rate
cuts this year. Bangko Sentral forecast in July that inflation
will average 3.1 percent this year, and 3.2 percent in 2013.

“Monetary policy remains appropriate at this time,”
Guinigundo said in an interview in his office in Manila. “You
now face significant issues with respect to commodity price
increases. On the geopolitical side, there was renewed tension
in the Middle East, driving concern on possible tightening of
supplies.”

The government may reduce its overseas borrowing to curb
foreign-exchange risks, Finance Undersecretary Rosalia de Leon
told reporters in Manila yesterday. This latest news on cutting
overseas borrowing is also “positive” for the peso,
Tanuwidjaja said.

The government’s benchmark 10-year bonds rose this week.
The yield on the government’s 4.875 percent bonds due August
2022 declined five basis points, or 0.05 percentage point, to
4.83 percent, according to prices from Tradition Financial
Services. The rate was unchanged today.